The General Agreement on Tariffs and Trade - Essay Example

The GATT and W The Difficulty with Doha The General Agreement on Tariffs and Trade (GATT), first signed in 1947, was initiated to provide an international platform to promote free international trade through tariff reduction and act as a mechanism for settling trade disputes between its member nations. During the early years, GATT had no formal organisation. In 1995, the World Trade Organization (WTO) was created with headquarters in Geneva Switzerland. The WTO is the governing board responsible for negotiating, regulating, and enforcing the body of agreements. The agreements are arrived at through a series of negotiating 'rounds', which are named after the location where the talks take place. The current round of talks are known as the Doha Round after Doha Qatar and include negotiations on goods, services, and intellectual property. GATT In 1947, several nations came together in the post World War II environment to remove protectionist tariffs and foster international trade co-operation. GATT has never been recognised as an official international organisation and refers only to the body of agreements among its member nations. GATT's primary mechanism for regulating and stimulating international trade has been tariff reduction and elimination. "In the late forties, the average duty on industrial products imposed by developing countries was around 40 per cent ad valorem. As a result of the Uruguay Round and the previous Rounds, the average duty is as low as 3.9 per cent" (United Nations Conference 2003, p.45). While GATT experienced much success through the reduction of tariffs, many nations remained reluctant to enter into agreements that addressed other aspects of trade. The initial agreements were successful not only by freezing and reducing tariffs; they also discouraged the formation of preferential trade agreements. GATT was based on the concept of the "Unconditional Most Favored Nation" (MFN) status. This policy mandated that all members treat each other member with the same status as their most favoured trading partner. This gives equal access to all members and stimulates open trade. Some preferential agreements, based on geographical proximity, have been allowed under GATT. The European Economic Community (EEC) was a regional trade bloc that grew out of the European Coal and Steel Community (ECSC). Though it promoted preferential regional trade, it was allowed under a waiver of GATT's no-new-preferences rule (Kenwood 1999, p.285). Lower tariffs and equal access to markets is the foundation of GATT. Though the preamble of the GATT states that its purpose is the "reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international commerce", the agreements spread into many other areas (University of British Columbia 1998). One of the main thrusts of GATT has been the elimination of quantitative restrictions. Quotas and import restrictions had placed a serious impediment to world trade in the years 1913-1950. Quotas were even more damaging to trade than tariffs because they set a strict limitation on trade. GATT addressed this issue by condemning quantitative trade restrictions except for extreme situations such as short-term balance of payment purposes and for the protection of 'infant' industries (Kenwood 1999, p.242). The reduction of tariffs and the elimination of quantitative restrictions were primarily responsible for the UK's global trade growth in the last half of the 20th century. In the period 1913-1950 the UK had a negligible export growth rate. Under GATT the growth rate had increased to 5% for the period 1990-1996 (Kenwood 1999, p.24). GATT has also addressed other issues that promote free trade and the fair treatment of its members. The Uruguay round, 1986-1994, was designed to meet the challenges of technology and communications. The talks were directly responsible for $740 billion in tariff cuts and it has been estimated that global trade would increase by $270 billion a year and that the world would be over $500 billion better off by 2005 (Kenwood 1999, p.294). In addition to stimulating global trade, the Uruguay round addressed the issues of intellectual property, services, and the financial sector. GATT had rarely addressed the areas of environmental preservation and protection. As the GATT preamble indicates, economic development should take into consideration the concept of sustainability. Nowlin 2002 has criticised the lack of definition and contends, "Questions naturally arise about sustainable development, including what it is and how it can be balanced with the expectations of an expanding human population". GATT has rarely entered into environmental controversies and discourages trade restrictions due to environmental policy. The Uruguay round also created and established the WTO. Though the GATT has never been recognised as an organisation, it has gained the de facto status through the creation of the WTO. GATT has, for practical purposes been split into the General Agreement on Trade and Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) (World Trade Organization 2005, p.24). Together these agreements make up the WTO. World Trade Organization While the GATT was a collection of trade agreements and policies, it had no formal organisational structure. There were dispute resolution processes and rules of negotiation. However, the WTO has a governing board and is an official internationally recognised organisation. This gives it more flexibility in administrative powers, enforcement capabilities, and conflict resolution. The WTO has followed in the tradition of GATT and is based on the principle of MFN and has expanded its role in global economics (World Trade Organization 2005, p.11). The WTO has continued the GATT framework of conducting trade negotiations in a series of 'rounds'. GATT promoted free trade based on the philosophy that free trade would increase economic activity and raise the standard of living for everyone. The WTO has been more pro-active in its role to reduce world poverty. The Doha Round, the current round of negotiations, has included a development round. The WTO has set a goal of reducing world poverty by one half by the year 2015. According to Mike Moore, Director-General of the World Trade Organization speaking to the Public Symposium on Doha Development in Geneva 2002, "Open trade will play a role in these ambitious plans. Successful liberalisation of trade could boost the world economy by $2.5 trillion and lift 320 million people out of extreme poverty" by 2015. The sentiment that the role of the WTO is to raise the standard of living of everyone, especially the poorest, was echoed by Kofi Anan 2001. He states that the most vital role of the WTO, "...is to make sure that a new round of trade negotiations really does extend the benefits of free trade to the developing world". The negative reaction to WTO policies that have been perceived as exploiting the poor have prompted the WTO to extend their role, "... into sensitive areas of the environment, corporate tax measures, and public health" (Sampson 2001, p.3). The role of the WTO has seen a shift from the GATT role of facilitating free trade into the role of international governance. One of the roles that WTO fulfils in international governance is to assure food safety. Food, animal, and plant safety is spelled out in the Sanitary and Phytosanitary Measures Agreement (SPS). Member nations are encouraged to use existing international standards or higher where they exist. The agreement includes "provisions on control, inspection and approval procedures" (World Trade Organization 2005, p.31). Governments must keep member nations apprised of changes and give adequate notice when regulations are changed. These issues are taken on by the WTO to facilitate the ease of import and export of products. It uses available scientific research to guide them and does not have a pre-set internal standard or agenda. The governance role of the WTO further extends to insuring trade fairness by protecting property rights among the participants. Protecting intellectual property has become an increasingly important function of the WTO since 1995. The TRIPS agreement covers principles and enforcement. The WTO's agreement is an attempt to "narrow the gaps in the way these rights are protected around the world, and to bring them under common international rules" (World Trade Organization 2005, p.42). It establishes methods and standards of protection that member nations must give to the intellectual property of the other members. Environmental concerns have also fallen under the umbrella of the WTO's role. This is evidenced by the Convention on International Trade in Endangered Species (CITES), or the Cartagena Protocol on trade in GM products (Liberal Democrats 2004, p.28). The environmental concerns also enter the area of labelling. Countries around the world are concerned about making informed choices by label information and the WTO has stepped up to insure uniformity exists and minimum standards are universal. Fair trade practices are encouraged by the WTO and they also impact member nations on the issues of dumping, subsidies, and countervailing measures. In its role of international governance, the WTO has sought to protect developing nations from being able to progress due to subsidies provided by wealthier nations. It has also exempted certain nations from the rules in an effort to allow them to compete (World Trade Organization 2005, p.51) An example of this is the emergency protection from imports policy that the WTO has established. In addition, the WTO has taken on the role of regulating international red tape, customs valuation, rules of origin, and investment standards (World Trade Organization 2005, p53). Many of these issues are still in a 'gray area' as international co-operation is a complex task. Current talks continue to try to resolve these issues to encourage free and easy trade around the globe. The current talks, the Doha Round, has attempted to address many of these issues and in doing so has met with considerable challenge. The talks, which began in 2001 at Doha Qatar, have confronted these issues on what is known as the Doha agenda. The Doha Round The Doha Round of the WTO negotiations has faced serious obstacles since they began in 2001. Global pressures have redefined the WTO's role as more attention has been placed at achieving a global public good through multi-lateral trade. This has tempted some nations, "to wait until the others negotiate and then claim the most favoured nation treatment - that is, the temptation to free ride on the system" (Zedillo 2006). This has been one of the stumbling blocks to the Doha Round. Another ongoing obstacle to the talks has been the issue of agricultural subsidies that are at the heart of US agriculture. Subsidies make it difficult for member nations to compete with the US in the area of grain crops. Without an agreement to reduce subsidies, large grain producing countries such as Brazil and Argentina have been reluctant to negotiate. The EU has maintained tariffs to level the price field and according to Zedillo 2006, "EU will continue to resist major cuts in agricultural tariffs and ask that a large number of products be designated sensitive, exempt from the general rules to reduce protection". The issue of agricultural subsidies has been a major sticking point in the Doha Round of trade negotiations. The strict limitations imposed by the EU Common Agricultural Policy (CAP) reforms and the fall 2004 agreements on the EU agricultural budget put further constraints on reaching an agreement. According to Zedillo 2006, "British Prime Minister Tony Blair admitted that the CAP is a major obstacle to progress". Blair has called for American and Japanese reviews of existing subsidy programs. In the US, Bush is experiencing a fall in popularity and reducing farm subsidies may not be politically possible for the embattled president. Major negotiating members have maintained that the negotiation process itself has contributed to a lengthy and unworkable approach in the Doha Round. Negotiations currently use a 'request-offer' approach. This method requires, "...multiple intensive negotiating sessions in which initial offers are followed by further negotiations... leading to improved offers, followed by further negotiation" (Shafer 2005, p.4). This process can take many months to resolve a single issue. The EU has taken a similar view of the negotiating process. The EU has also insisted that. "...development must remain central to the negotiating round... ensuring that adequate flexibilities for developing countries as foreseen in the negotiating mandates on agriculture, industrial tariffs, services or trade facilitation" (European Union 2005). The logistical problems of developing nations, agricultural tariffs, subsidies, and the unwieldy negotiating process have stalled the Doha Round of Talks The GATT was initially designed to promote free trade as a way to increase the wealth of the member nations. As the GATT grew into the WTO in 1995, it took on a new role of bringing in new members and emerging economies. Free trade and the concept of protecting developing commerce have sometimes been competing forces. The complex issues of today are complicated by the archaic negotiating methods used by the WTO. The GATT and the WTO have seen great success in their 60-year history in the growth of global trade. Its ambitious goals of reducing poverty and spreading free trade have met new challenges. The Doha round may be able to meet these challenges, but leaders of member nations must be willing to suffer some domestic political fallout as a result or be willing to return to the protectionist environment of the early 20th century. References Anan, K 2001, ''Laying the foundations of a fair and free world trade system' in The role of the WTO in global governance, ed. G Sampson, United Nations University Press, New York. European Union 2005, 'EU Pushing Ahead the Doha Development Agenda', EU@UN, 9 December, viewed 22 March 2007, Kenwood, G 1999, Growth of the International Economy, 1820-2000 : An Introductory Text, Routlledge, London UK. Liberal Democrats 2004, Wealth for the world: Policies on international trade and investment, Policy Paper No. 65, Liberal Democrats, London UK. Moore, M 2002, 'Moore stresses development role at WTO', Speech delivered at the Public Symposium on Doha Development Agenda and Beyond in Geneva Switzerland 29 April 2002, viewed 22 March 2007, < http://www.wto.org/english/news_e/pres02_e/pr290_e.htm> Nowlin, H 2002, 'The effects of the GATT/WTO in world resource allocation', Electronic Green Journal, is.16, viewed 22 March 2007, < http://egj.lib.uidaho.edu/egj16/nowlin1.html> Sampson, G 2001, Role of the world trade organization in global governance, United Nations University Press, New York. Shafer, J 2005, 'The Doha Round and US Service Sector Interests', Statement to the US Congress Committee on Finance in Washington DC 27 October 2005, viewed 22 March 2007, United Nations Conference on Trade and Development 2003, Dispute Settlement 3.5 GATT 1994, New York and Geneva, pp. 1-89. University of British Columbia 1998, General Agreement on Tariffs and Trade (GATT 1947 as amended through 1966), Vancouver British Columbia, viewed 22 March 2007, < http://pacific.commerce.ubc.ca/trade/GATT.html#Preamble> World Trade Organization 2005, Understanding the World Trade Organization, Geneva Switzerland, viewed 22 March 2007, Zedillo, E 2006, 'Can the Doha Round be salvaged', YaleGlobal, 9 May, viewed 22 March 2007, Read More